Subsidy

A subsidy is assistance paid to a business or economic sector or producers. Most subsidies are set in place by the government for producers or are distributed as subventions in an industry to prevent the decline of that industry (e.g., as a result of continuous unprofitable operations) or an increase in the prices of its products or simply to encourage it to hire more labor (as in the case of a wage subsidy). Examples are subsidies to encourage the sale of exports; subsidies on some foods to keep down the cost of living, especially in urban areas; and subsidies to encourage the expansion of farm production and achieve self-reliance in food production. Subsidy has been used by economists with different meanings and connotations in different contexts. The dictionary defines it as "money granted by state, public body, etc., to keep down the prices of commodities, etc.”. Environmental economists define subsidies as uncompensated environmental damage arising from any flow of goods and services. In a budgetary context, it may be defined as “unrecovered costs in the public provision of private goods”.

Subsidies are often regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports. Subsidies may distort markets, and can impose large economic costs. Financial assistance in the form of a subsidy may come from one's government, but the term subsidy may also refer to assistance granted by others, such as individuals or non-governmental institutions.

Examples of industries or sectors where subsidies are often found include utilities, gasoline in the United States, welfare, farm subsidies, and (in some countries) certain aspects of student loans.